5 ESSENTIAL ESTATE PLANNING DOCUMENTS
Many people consider estate planning as only for the very wealthy. Actually, estate planning is for everyone. It allows you to make arrangements now to ensure that your goals are met after you die. Depending on your situation, the estate planning process may be very simple or could be more advanced including trusts and gifting programs. Today, we will start with the 5 essential estate planning documents everyone should consider.
1. Durable Power of Attorney
A durable power of attorney (DPOA) allows you to authorize someone else to handle your financial affairs in the event you are incapacitated. This enables them to pay your bills, collect benefits, look over your assets, and even file your taxes. There are 2 types of durable power of attorneys: immediate and springing. The immediate DPOA does just as the name states, it becomes effective right away. A springing DPOA does not become effective until you are incapacitated.
2. Advanced Medical Directives
Advanced medical directives (AMD) can be set up to let others know your desires for medical treatment or to allow someone else to make medical decisions on your behalf. There are three types of AMDs, depending on the state you live you may need only one type or all three. Talk to your estate planning attorney to find out what your state requires.
- Living Will: This allows you to choose the type of medical care you wish to receive. These are most commonly used to decline treatment that is only used to “postpone the moment of death.”
- Durable Power of Attorney for Health Care: Similar to the DPOA mentioned earlier, the durable power of attorney of health care allows you to select someone to make health care decisions on your behalf. You can decide how much power to give.
- Do Not Resuscitate Order (DNR): A DNR orders medical personnel not to perform CPR on you if you go into cardiac arrest. You can choose to have the DNR effective only in the hospital or in any location.
A will is most commonly used to distribute property to loved ones after death. Without a proper will, the distribution of your property will be decided by the state. Another important election you can make through your will is to elect an executor. The executor of your will is the person who will manage and settle your estate. Without a named executor, the court will appoint one for you. Finally, you may appoint a legal guardian for your minor children in your will. As with the others, if you have not made an election, the court will appoint a guardian. A will allows you to maintain control of important decisions after your death.
4. Letter of Instruction
A letter of instruction is not a legal document, but rather a side note where you can express your thoughts and directions. These usually accompany the will to give instruction and will remain private. Most people use these to make burial requests known or to explain the location of important documents.
5. Living Trust
Also known as a revocable trust, it is a separate entity you create to own property. You still have control over the property while in the trust. Not everyone needs a living trust, but they are very useful in situations where probate should be avoided. You may want to avoid probate if you live in a state where it is a lengthy and expensive process. Avoiding probate also ensures your privacy, probated documents become public record. There are many things to consider when developing your estate plan. Talk to your financial advisor and estate planning attorney to see what strategies are right for you. Once your strategies are in place, it is a good idea to review them annually to ensure they are still meeting your goals.